843 F.

2d 1038

Joanne PISTAS, Plaintiff-Appellant,

v.
NEW ENGLAND MUTUAL LIFE INSURANCE COMPANY,
Defendant-Appellee, Cross-Appellant,
v.
Yale H. LAUTER, Third-Party Defendant-Appellee.
No. 87-2038, 87-2251.

United States Court of Appeals,

Seventh Circuit.
Argued Feb. 25, 1988.
Decided April 8, 1988.

Eric F. Greenberg, Burditt, Bowles & Radzius, Ltd., Chicago, Ill., for
plaintiff-appellant.
Barry L. Kroll, Williams & Montgomery, Ltd., Chicago, Ill., for third
party defendant-appellee.
J. Robert Geiman and David J. Novotny, Peterson Ross Schloerb &
Seidel, Chicago, Ill., for defendant-appellee, cross-appellant.
Before CUMMINGS, CUDAHY, and EASTERBROOK, Circuit Judges.
EASTERBROOK, Circuit Judge.

An insurance adjuster and onetime agent, three weeks after the removal of 90%
of his stomach at the Mayo Clinic on account of cancer, applies for $200,000 of
term life insurance. He signs an application denying that he has cancer. A
physician signs a statement that he has examined the applicant and sees no
signs of illness--despite the prominent unhealed incision from the operation.
The insurance company issues the policy, believing the applicant to be in
perfect health. But he is undergoing an experimental radiation-chemotherapy
regimen, and within nine months is dead. The insurance company predictably
declines to pay, reasoning backward from the cause of death to the falsity of the
statements on the application. The widow then files this suit to recover on the

policy.
2

The widow does not contest the falsity and materiality of the statements on the
application and medical report--or the related and interesting fact that he
checked into the Mayo Clinic under an assumed name. The parties have two
theories about the report, which we need not explore: the insurer thinks that the
deceased's brother appeared for the examination, while the agent who took the
application thinks that the physician made it all up at the deceased's request;
the widow has no theory about the bogus medical report. We begin and end
with the divergent theories about the application, which contains (over the
deceased's signature verifying the truth of the representations) a check in the
"No" box to the printed question: "Any treatment for or consultation with a
physician concerning a heart attack, a stroke or cancer (other than skin cancer)
within the past 2 years?". One would think this bald lie the end of the matter.
The district court did, granting summary judgment to the insurer.

The widow's theory is that the deceased revealed the truth to Yale Lauter, the
agent who took the application. This is backed up by the affidavit of Curtis
Yearwood, the deceased's business partner who applied for insurance at the
same time. According to Yearwood, Lauter replied that he would "take care of
the insurance." The widow insists that the deceased would have understood this
as meaning that cancer is not material to the decision to underwrite life
insurance. Then either the deceased checked the "No" box under the impression
that the answer is irrelevant, or Lauter checked the boxes and induced the
deceased not to review the answers before signing. In either event, the widow
insists, the case comes within the rule in Illinois (whose law governs this
diversity case) that an applicant who reveals the truth to the insurance agent is
protected against the agent's errors in relaying that knowledge to the insurer.
E.g., Logan v. Allstate Life Insurance Co., 19 Ill.App.3d 656, 660-61, 312
N.E.2d 416 (2d Dist.1974) (collecting cases). George Pistas, the deceased's
brother, added in an affidavit that George talked with Lauter by phone before
Dean Pistas applied for insurance and told Lauter that Dean had cancer. (Lauter
had met the deceased a few months earlier.)

The insurance company and agent Lauter (impleaded as a third party defendant)
take a different view of the application. Lauter avers that the deceased lied
about his health and that the application faithfully represents what he was told.
This sets up a testimonial conflict about a potentially material issue. The
insurance company has two theories: one is that the deceased lied to Lauter and
deliberately checked the wrong box on the form; the other is that the deceased
and Lauter, two participants in the insurance business, were in cahoots in
attempting to milk some money out of an insurance company for the benefit of

a dying insurance adjuster. (The record does not reveal whether Lauter still
writes insurance for New England Life.)
5

Now one would think that this dispute, too, is irrelevant. The case seems to be
covered by the principle "No harm no foul." The deceased was not just trying to
get a cheap rate (say, by applying for a nonsmokers' policy, see Smith v. North
American Co. for Life & Health Insurance, 775 F.2d 777 (7th Cir.1985)), when
he could have had the same amount of insurance had he been willing to pay the
correct rate. Then an agent's failure to transmit the truth deprives the applicant
of the knowledge that he needs to protect himself by taking out a different
policy, which leaves uninsured someone who could be insured. Nothing of the
sort happened here. A person under treatment for stomach cancer, told by his
physician that the disease is terminal, is not insurable at any premium
significantly less than the face amount of the policy. If Lauter had told Dean
Pistas that New England Life would not write the policy, what could Pistas
have done?

The widow replies that he could have obtained smaller policies that do not
require physical examinations. She paints a picture of applications for 20
policies of $10,000 each, readily available to a young person (Dean Pistas was
25). The difficulty is the same one Pistas encountered--the questionnaire. We
do not know of any policy of life insurance, however small, available without
replying to a series of questions about health, including one about cancer.
Certainly the record contains no indication that any company offers such
policies. Neither, however, does it contain an affidavit that there are no such
policies, and the subject is not one for judicial notice; it is not inconceivable
that some firm offers policies without questionnaires, handling the adverse
selection effect by limiting the pool of applicants (say, to employees of a given
firm or members of an existing group). If New England Life bears the burden
on this subject, the silence of the record prevents a resolution of the case on this
line of reasoning. See LHLC Corp. v. Cluett, Peabody & Co., 842 F.2d 928,
935 86-3055 (7th Cir. 1988).

Perhaps because of this problem, the district court inquired into the deceased's
good faith as well as into the statements that appeared on the application. The
applicant must act in good faith toward the insurer, and the rule that
information to the agent is as good as information to the insurer applies only if
the applicant does so. Tesluk v. Metropolitan Life Insurance Co., 130
Ill.App.2d 290, 294, 264 N.E.2d 566 (1st Dist.1970); see also Meier v. Aetna
Life & Casualty Standard Fire Insurance Co., 149 Ill.App.3d 932, 940, 103
Ill.Dec. 25, 500 N.E.2d 1096 (2d Dist.1986). The district court concluded that
on this record the deceased could not have acted in good faith. If he neglected

to tell agent Lauter of the cancer, he was not acting in good faith; if he told
agent Lauter and heard the reply that Lauter would "take care of the insurance"
he also must have known that something was amiss. The deceased had been a
full-time insurance adjuster for five years, and for one and a half years before
that a life insurance salesman. He had to know that people with a terminal
disease can't get $200,000 of life insurance and that the question about cancer
was material. So, the district court concluded, whether the deceased told Lauter
or not, he may not collect on the policy.
8

This resolves a factual question; "bad faith" is a state of mind. Therefore, the
widow reasons, the case must be tried. But a party may resist summary
judgment only by producing evidence from which a reasonable jury could draw
the necessary inferences in her favor. Anderson v. Liberty Lobby, Inc., 477
U.S. 242, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986); Celotex Corp. v. Catrett, 477
U.S. 317, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). Speculation or an appeal to
the jury's compassion does not carry the day. This record does not contain facts
that would support any inference other than the one the district court drew.
How could a jury infer that a professional in the insurance industry does not
know that cancer is a material fact and that terminal cancer disqualifies an
applicant from receiving life insurance? Unless the jury could infer that Dean
Pistas was ignorant of such things, it could not conclude that he was acting in
good faith, even if it believed (as Yearwood's affidavit says) that Pistas told
Lauter about his affliction. The only inference it could draw was that Pistas
believed that Lauter would do him a favor by trying to pull the wool over the
insurer's eyes. If it worked, his widow would be $200,000 to the good; and if it
failed, he would have lost nothing. Of course, if the jury should disbelieve
Yearwood, then the widow must lose anyway.

Dying from cancer at age 25 is a terrible thing, and so is losing a spouse so

early in life. Joanne Pistas may hope that a jury would be compassionate. But it
is not the function of the legal system to shift misfortune to the shoulders of
those who were not responsible for it. New England Life did not cause or
contribute to Dean Pistas's premature death, and it did not knowingly agree to
underwrite his longevity.

10

This disposition makes it unnecessary to decide whether appeal No. 87-2251,

New England Life's appeal against Lauter, invokes our jurisdiction. The district
court dismissed the insurer's third-party complaint against Lauter, reasoning
(correctly) that it became irrelevant once the insurer prevailed against the
widow. The widow filed a timely appeal; New England Life did not appeal
against Lauter within the 14 days allowed by Fed.R.App.P. 4(a)(3). It obtained
from the district court a finding of "excusable neglect" and now defends its

cross-appeal on the ground that it needn't have appealed at all. There are crosscurrents in the cases, some saying that the initial notice of appeal gives the
court jurisdiction of the whole case so that the subsequent appeal serves only a
notice function (and Lauter had actual notice that New England Life wanted to
reinstate the third-party action if the case should be returned to the district
court), others saying that the court may not diminish the rights of a party unless
someone files a timely notice of appeal with respect to that party (and the
widow's initial notice of appeal did not put in issue any of the rights of Lauter).
In re Barnett, 124 F.2d 1005 (2d Cir.1942) (Frank, J.), and id. at 1013-14 (L.
Hand, J., dissenting), lays out the terms of the dispute, which is no better
resolved today than it was in 1942. Compare Bryant v. Technical Research Co.,
654 F.2d 1337, 1341-43 (9th Cir.1981), with Zapico v. Bucyrus-Erie Co., 579
F.2d 714, 725 (2d Cir.1978). We need not take sides in this debate. The appeal
against Lauter was conditional, and the condition (reversal of the main action)
has not been satisfied. The appeal is defunct on its own terms, and we dismiss it
as irrelevant.
11

Appeal No. 87-2251 is dismissed. On appeal No. 87-2038, the judgment is

affirmed.